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July 4, 2012

Bank of England Implicated by Barclays in Libor Fixing

Tucker said to have expressed Whitehall concern over high Libor rates

(Photo: AP)

Bob Diamond may have resigned as CEO of Barclays, but he’s not going quietly, and he may take some people at the Bank of England (BoE)—and elsewhere—down with him. Documents released by the bank indicate that he may have been given tacit approval by Paul Tucker, deputy BoE governor, to adjust Libor rates to be more in line with other banks after Whitehall expressed concern lest Barclays appear to be in trouble.

A Financial Times report on Wednesday said that the bank published a document prior to Diamond’s expected appearance before Parliament indicating that the issue of Libor rates had been the subject of a conversation with BoE. During October of 2008, according to the document, Barclays’ published Libor submission in the wake of the Lehman Brothers collapse was the highest among all banks submitting their rates to determine the Libor rate.

According to the document, “Barclays did not understand why other banks were consistently posting lower submissions” and did not believe their costs were so much lower than Barclays’ own. Further, the document says that Barclays had raised the issue repeatedly with authorities.

“On 29 October 2008, Bob Diamond received a call from Paul Tucker, the Deputy Governor of the Bank of England,” said the document. While “Bob Diamond did not believe he received an instruction from Paul Tucker or that he gave an instruction to Jerry del Missier,” the document continues, “…Jerry del Missier concluded that an instruction had been passed down from the Bank of England not to keep LIBORs so high and he therefore passed down a direction to that effect to the submitters.”

In an addendum to the document, a note is appended recording Diamond’s perception of the call—one of only three “notes to file,” according to the FT, that Diamond made during his whole career. In that note, Diamond says that Tucker had relayed concerns from “senior figures within Whitehall” that Barclays was consistently in the high end of Libor pricing.

Diamond’s note says, “I asked if he could relay the reality, that not all banks were providing quotes at the levels that represented real transactions, his response ‘oh, that would be worse.’”

Tucker went on to say, according to the note, that “the levels of calls he was receiving from Whitehall were ‘senior’ and that while he was certain we [Barclays] did not need advice, that it did not always need to be the case that we appeared as high as we had recently.”

Tucker is considered the front-runner to replace Mervyn King, current BoE governor, when his term expires in June of 2013. Alistair Darling, who was finance minister at the time, said in a Reuters report that he could not imagine BoE suggesting to Barclays that it do any such thing and further said that his department would never "suggest wrongdoing like this."

Lord Myners, who formerly was the City minister for the Labour government, said Wednesday that he had not talked with BoE at the time about the Libor rate. In the report, he said, “I can say quite categorically I didn’t speak to Paul Tucker or anybody at the Bank of England about the Libor rate-setting process. And I can also say with a high degree of confidence that I don’t think any of my colleagues in the Treasury, under the leadership of Alistair Darling, would have done so either.”

Barclays also said in the document that it had spent nearly 100 million pounds ($157 million) on a three-year internal investigation of the Libor matter.

Allies of Chancellor of the Exchequer George Osborne called the revelation “explosive” because it called into question not just the role of the BoE in the debacle, but also those of Gordon Brown, prime minister at the time; Shriti Vadera, one of his chief advisors; and former City Minister and Schools Secretary Ed Balls.

Dominic Rossi, chief investment officer for equities at Fidelity Worldwide Investments, said in a Bloomberg report that Diamond would have to tell Parliament “the nature of the manipulation, who was involved, how long were they involved for, was it escalated, did they inform the regulator, did they inform the Bank of England. I don’t think anybody should underestimate the seriousness of this.”

A total of 18 banks submit rates from which Libor is determined, and other banks are still under investigation for their role in the rate-fixing scheme. Among them are Royal Bank of Scotland Group Plc, UBS AG and Credit Suisse Group AG.

Owen Watkins, a former regulator with the Financial Services Authority (FSA) in England and now a lawyer at Lewis Silkin LLP in London, was quoted saying, “Barclays is now the benchmark. They have been fined, they have lost their chairman and they have lost their chief executive. If you are the chairman or the CEO of these other institutions, you might be sleeping a little less soundly in your bed at night.”

Diamond, who holds dual American and British citizenship, was to attend the fundraising dinner, scheduled for July 27, when Romney will be in London for the Olympics. However, that is no longer the case, according to Romney campaign spokeswoman Andrea Saul. The financial sector has been one of the largest avenues of contribution for Romney, who cofounded private equity firm Bain Capital.

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